Inflation jumps to 5.1% on the back of dry spell

 

Ms Milly Nanyanja arranges her tomatoes for sale at a stall in Mubende District. Price of such commodities are likely to go up following an increase in inflation. PHOTO BY STEPHEN WANDERA 

Kampala.

After months of declining, Uganda’s inflation is once again on an upward trend due to the long dry spell witnessed in most parts of the country, resulting into reduced food supplies to markets hence price increases.

The Consumer Price Index (CPI) data released by the Uganda Bureau of Statistics (Ubos) in Kampala yesterday indicates that the headline inflation rose by 1.5 percentage points to 5.1 per cent in July from a revised rate of 3.6 per cent a month earlier.


Inflation is the general change in the prices of commodities and services over a certain period of time. With high inflation, it means that one needs more money to pay for a similar basket of goods and services when compared to a similar period in the past.

Analysts
Mr Sam Kaisiromwe, a senior statistician at Ubos, said the long dry spell affected agricultural production across the country, especially for fresh fruits, vegetables and fresh milk, resulting into low supplies to markets.

Fresh fruits inflation is said to have increased by an average of 4.8 per cent on an annual basis and 8.8 per cent on a monthly basis while that of vegetables rose by 24.1 per cent.


Fresh milk inflation, on the other hand, increased by about 14.9 per cent on an annual basis and 8.4 per cent monthly on a month basis.

The country has been grappling with a drought for about three months since April this year.


The other contributors to a rise in annual inflation are increases in prices of beverages and unmetered water due to doubling tax on spirits to 140 per cent and 18 per cent Value Added Tax on piped water in the 2013/14 budget.


Although the budget proposals are yet to be passed by Parliament, Mr Kaisiromwe said some speculative traders have already increased prices.

Mr David Cowan, a Citibank Africa economist predicts: “The economy regains momentum into 2014” report that inflation will continue to remain low and stable for the rest of 2013, assuming that the current monetary and fiscal policy stance is maintained.

He, however, forecast inflation to remain in a range of 5.5 to 6 per cent by the end of this year, rising to over 7 per cent by mid next year and 2014.


Mr Stephen Kaboyo, Capital Partners managing director said rising inflation reduces Bank of Uganda’s (BoU) room to cut the Central Bank Rate below the 11 per cent level.
He added that BoU is likely to refine its policy guidance with a sense of caution.

Meanwhile, core inflation, which excludes food crops, fuel and metered water which excludes food crops, fuel, electricity and metered water that are volatile to price change, also increased to 6.4 per cent from a revised 5.8 per cent in June due to price increases for clothings, footwear and education charges.
This is above Bank of Uganda’s target of 5 per cent.